Tax Treatment of Individual Retirement Arrangements

Overview

Employee Retirement Income Security Act created an individual retirement arrangement—usually referred to simply as an IRA—to encourage taxpayers who were not participants in an employer-sponsored qualified retirement plan to save money to fund their future retirement needs. In order to participate, you needed to be employed and not a participant in a pension, profit-sharing or other qualified plan.

These early ERISA provisions offering tax benefits to individuals funding IRAs have been extended in subsequent legislative actions to:

  • unemployed spouses
  • qualified retirement plan participants
  • taxpayers preferring tax-free distributions instead of deductible contributions

Since that earlier ERISA expansion related to IRAs, new IRAs have been added, including Roth IRAs that offer tax-free qualified distributions rather than deductible contributions. In order to differentiate the newer Roth IRA from its earlier cousin, the original IRA is now referred to as a “traditional” IRA.

Learning Objectives

Upon conclusion of this course, students will be able to:

  • apply the rules governing eligibility for and contributions to traditional and Roth IRAs
  • identify the requirements and benefits related to a spousal IRA
  • apply the tax treatment rules concerning contributions to and distributions from traditional and Roth IRAs
  • distinguish between traditional and Roth IRA distribution rules

Tax Year: 2020

Designed For

CPAs, EAs, and other tax professionals

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